US war on Iran sends oil tanker rates above $1.2mln a day: FT

The cost of chartering an oil supertanker between West Asia and Asia has passed $1.2 million a day for the first time, the Financial Times reported. The US war on Iran is forcing tankers onto longer routes and making freight a central driver of the global energy crisis.

According to shipbroker Braemar, rates for Very Large Crude Carriers(VLCCs), which carry about two million barrels each, have more than doubled on the route from the region to China since late August.

The cost of shipping crude from Brazil to China rose by about a third in a single week.

Longer voyages, fewer available ships

The surge comes from a shortage of VLCCs.

Supply from the Gulf has been disrupted, so refiners are buying crude from more distant producers, and tankers stay at sea for longer. Morgan Stanley analyst Martijn Rats told the FT that Indian refineries are now buying from Brazil, Guyana, West Africa, and the North Sea, on voyages lasting 30 to 40 days.

Flows out of the Gulf have also slowed. About 60 vessels are carrying crude back and forth through the Strait of Hormuz and offloading it onto other ships in the Gulf of Oman, which then complete the journey.

Rats said these ship-to-ship transfers are very slow and leave some supertankers idle for around 10 days while they wait for cargo. Shipbroker Clarksons estimates that about 15 percent of the world’s tanker fleet is waiting off the Omani coast.

Insurance adds to the cost. War-risk cover for tankers in the region has reached about 10 percent of a ship’s hull value in some cases. In less active conflict zones, it is usually around 3 percent or less.

For most of last year, VLCC rates ranged between $20,000 and $50,000 a day. Before the war began, a structural shortage of ships had already pushed rates for Gulf cargoes to a record $120,000 a day in February.

Freight now shapes the price of oil

Shipping has become a major part of what refiners pay for crude. Tom Reed, head of oil market analysis at the pricing agency Argus, told FT that freight now makes up about a fifth of the cost of delivering crude to refineries, so disruption at sea feeds directly into oil prices. Mary Melton, senior tanker analyst at Braemar, put shipping’s share at 20 to 40 percent of the delivered cost.

This has opened a wide gap between benchmark and delivered prices. Brent crude has eased to around $100 a barrel this week, down from a wartime peak above $125 in April.

However, Amrita Sen, founder of the consultancy Energy Aspects, said landed crude costs in Asia have climbed toward $150 a barrel. She warned that freight may be what “breaks this market in the near term.”

Refiners cut output despite record fuel prices

Higher transport costs are eating into refining margins. Some refiners are cutting production even though refined fuel prices are at record highs. Diesel is trading around $180 a barrel in Singapore and above $200 in both the US and Europe.

Argus Media reported that several of China’s largest independent refiners have started reducing output. Hengli Petrochemical has lowered production at its 400,000-barrel-per-day Dalian refinery to 80 percent, down from near full capacity, and may cut further. Rongsheng and Shenghong are expected to reduce production from late September.

Sen expects crude prices to fall further as refiners buy less. She said demand for crude remains strong, but buyers are unwilling to pay current delivered costs.